We reproduce here a letter from Eamonn Butler, director of the Adam Smith Institute, London, to the editor of The Herald.

I HAVE no wish to argue for or against independence, but as an economist I would like to separate the economic realities of the currency issue from the political bluster that obscures them.

The Chancellor has ruled out a formal currency union, though some say this is just negotiating bluff. Either way, there is nothing to stop Scots continuing to use the pound if they choose. A Westminster government with no jurisdiction over an independent Scotland has no power to stop them.

Several independent countries, including Panama, use the US dollar, without seeking the permission of America’s central bank, the Federal Reserve. In the absence of a formal currency union agreement, Panama has no say in the Federal Reserve’s monetary policy, which is conducted solely for the benefit of America. Some argue, by analogy, that if an independent Scotland continued using the pound without a formal currency union, Scotland would have no say in Bank of England policy, which could be potentially damaging for Scotland’s economy.

Nevertheless, as a result of using the dollar, Panama – a country comparable in population to Scotland – has one of the world’s most stable banking sectors. And the economic interdependence between Scotland and the other countries of the present United Kingdom is so deep that the Bank of England would, in reality, have to take Scotland’s welfare into account when setting monetary policy.do so would risk damaging the other UK countries just as much as Scotland.

Another suggestion, from Jim Sillars, is that Scotland should print its own currency and tie it to the pound. There is no substantive difference between this idea and using the pound. As the two are pegged, the only difference is the design on the currency. And why (apart from national pride) go to the expense of printing Scottish notes, exactly equivalent to the pound – but which people south of the Border might be reluctant to accept?

The other option, switching to some other currency such as the euro, would be even more costly and difficult, and would raise huge, business-damaging uncertainties. It would also leave Scotland subject to the monetary policy of a country or agency with a very distant interest, if any, in Scotland’s welfare.

The easiest solution, therefore, would be for Scotland to continue using the pound, with or without a currency union, safe in the knowledge that, as an important part of the sterling economy, the Bank of England would have to take Scotland’s interests into full account when setting policy. The currency problem just isn’t a problem.

If Scotland shares sterling, it will have very little influence on decisions made by the Bank of England, and still less on what future UK governments do. Nor will it have must influence on its own economic policy – about as much as Portugal has as a member of the Eurozone. The best outcome, in my opinion, would be for the country to have its own currency, which would not be pegged to sterling. That, and that alone, would allow it to decide its own economic policy, including interest rates, fiscal policy and monetary policy, in its own interests.

However, there’s a more fundamental issue. The chief, indeed the only benefit, of independence is that it would enable Scotland to make its own decisions in perpetuity (of course no modern country is entirely independent, but that’s a given). It’s impossible today to say what those decisions will be, but one thing is certain: they’ll change over time. A future Scottish government might decide that pegging its currency to sterling was a good idea, but that same government (as in the UK in 1992), or a successor, might decide that it wasn’t such a good idea. The point is that if you vote “yes” next month you’ll be voting, not for one particular economic policy, or for one particular defence policy, but for the right to decide to all these policies in the future. It’s frustrating that so few participants in the debate seem to grasp this. Eamonn Butler doesn’t seem to be one of them.